Describe appropriate discretionary fiscal policy according to Keynesian economics to smooth out the business cycle.
What will be an ideal response?
The government should increase its spending and/or reduce taxes (run a deficit)to combat a recession. The government should do just the opposite to combat inflation during an economic expansion.
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To achieve long-run equilibrium in an economy with a recessionary gap, without the use of stabilization policy, the inflation rate must:
A. not change. B. increase. C. decrease. D. either increase or decrease depending on the relative shifts of AD and AS.
Wage decreases lead to a decrease in aggregate quantity supplied
a. True b. False Indicate whether the statement is true or false
A storm destroys several factories, reducing the stock of capital. What effect does this event have on factor markets?
a. Wages and the rental price of capital both rise. b. Wages and the rental price of capital both fall. c. Wages fall and the rental price of capital rises. d. Wages rise and the rental price of capital falls.
Figure 15.3 depicts a one-mile stretch of beach with 100 swimmers distributed evenly along the beach. There are two ice cream vendors - 1 and 2 - on the beach selling an identical product. Assume that each swimmer buys only one ice cream cone and that they prefer to buy ice cream from the nearer vendor. If neither vendor has an incentive to adjust their locations:
A. vendor 1 is at B while vendor 2 is at C. B. vendor 1 is at A and while vendor 2 is at D. C. vendor 1 is at A while vendor 2 is at E. D. both vendors are at C.